1 / 35

REGULATORY FRAMEWORK FOR SECURITIES BORROWING AND LENDING IN THE PHILIPPINES By: JOSE P. AQUINO

REGULATORY FRAMEWORK FOR SECURITIES BORROWING AND LENDING IN THE PHILIPPINES By: JOSE P. AQUINO Director, Market Regulation Department, SEC PSE SECURITIES LENDING SEMINAR 2006 Philippine Stock Exchange Auditorium, Pasig City, Philippines June 22, 2006. *SEC Memorandum Circular No. 7

creyes
Download Presentation

REGULATORY FRAMEWORK FOR SECURITIES BORROWING AND LENDING IN THE PHILIPPINES By: JOSE P. AQUINO

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. REGULATORY FRAMEWORK FOR SECURITIES BORROWING AND LENDING IN THE PHILIPPINES By: JOSE P. AQUINO Director, Market Regulation Department, SEC PSE SECURITIES LENDING SEMINAR 2006 Philippine Stock Exchange Auditorium, Pasig City, Philippines June 22, 2006

  2. *SEC Memorandum Circular No. 7 RULES ON SECURITIES BORROWING AND LENDING * Approved by SEC on June 9, 2006.

  3. ELEMENTS OF SBL TRANSACTION • The lender temporarily transfers the title over borrowed securities to the borrower. • 2. The borrower provides the lender with collateral as security for the loan. The parties may agree that the title over collateral securities shall likewise be transferred to the lender.

  4. ELEMENTS OF SBL TRANSACTION3.The lender earns a fee as consideration for the loan.4.The borrower is entitled to the economic benefits of owning the borrowed securities but the borrower is obliged to create or manufacture equivalent benefits and deliver these to the lender.

  5. ELEMENTS OF SBL TRANSACTION5. A lender of equity securities loses title over said securities and so he is not entitled to vote, but may reserve the right to vote.6. At the end of borrowing period or maturity of the loan, the borrower returns the borrowed securities or equivalent to the lender while the lender returns the collateral.

  6. MODES OF CONDUCTIONG SBL *THROUGH LENDING AGENT *DIRECT LENDING *OTHER SCHEMES THAT MAY BE APPROVED BY SEC: *Lending Pool System      *Competitive Auction         *Bid Offer         *Others

  7. LENDING AGENT   * A juridical person who acts on behalf of a client with respect to the lending of securities. * No person shall act as lending agent unless registered as such by the SEC.

  8. REGISTRATION REQUIREMENTS FOR LENDING AGENT a. Application Form. b. Board Resolution/Authorization allowing the lending agency service. c. Organizational and functional charts of the securities lending unit.

  9. REGISTRATION REQUIREMENTS FOR LENDING AGENT d. Names and Curriculum Vitae of securities lending unit personnel. e. Detailed description of automated Securities Lending System. f. Manual containing risk management and internal control procedures.

  10. REGISTRATION REQUIREMENTS FOR LENDING AGENT g. Copy of BSP license if the applicant is accredited securities custodian for banks and NBFIs h. A registration fee of Php 50,000.00 i. Copy of pro-forma MSLA j. Copy of pro-forma SLAA

  11. OTHER REQUIREMENTS FOR LENDING AGENT *Securities Lending System * Securities lending unit personnel with functional knowledge and sufficient technical expertise in operating the securities lending system

  12. THIRD PARTY SERVICE PROVIDER The lending agent may appoint a third party to perform any or all the functions of the Securities Lending System. Provided that, the engagement of a third party service provider be disclosed in the application. Provided further, the lending agent shall be accountable for the acts, errors and omissions of third party service provider. REGULATORY FRAMEWORK FOR SECURITIES BORROWING AND LENDING IN THE PHILIPPINES By: JOSE P. AQUINO Director, Market Regulation Department June 21, 2006

  13. BASIC REQUIRED FUNCTIONS OF SECURITIES LENDING SYSTEM 1. Provide price quotation, trade matching and confirmation services. 2. Run a lender selection process if necessary. 3. Deliver the borrowed securities to the account of the borrower.

  14. BASIC REQUIRED FUNCTIONS OF SECURITIES LENDING SYSTEM 4. Receive collateral securities from the borrower. 5. Perform daily valuation of borrowed and collateral securities. 6. Determine the adequacy of total collateral value against total market value of borrowed securities for each borrower.

  15. BASIC REQUIRED FUNCTIONS OF SECURITIES LENDING SYSTEM 7. Issue margin calls or effect margin releases as appropriate. 8. Track corporate actions on borrowed & collateral securities, collect & distribute benefits to the borrower & lender. 9. Execute loan and collateral return and recall processes.

  16. BASIC REQUIRED FUNCTIONS OF SECURITIES LENDING SYSTEM 10. Receive borrowed securities from the borrower on maturity date. 11. Return collateral to the borrower at the end of borrowing period or earlier. 12. Collect lending fee on agreed due date and distribute the same to the lender.

  17. BASIC REQUIRED FUNCTIONS OF SECURITIES LENDING SYSTEM 13. Inform borrower of the occurrence of default. 14. Report failed settlements. 15. Monitor foreign ownership of equity securities.

  18. WHO MAY ENGAGE IN DIRECT LENDING 1. Domestic banks & branches of foreign banks 2. Investment houses 3. Investment companies 4. Insurance companies 5. Pension funds or retirement plans 6. Securities dealers 7. Entities that may be authorized by the SEC.

  19. REQUIREMENTS FOR DIRECT LENDING • MSLA between Borrower and Direct Lender • 2. Securities Lending System of Direct Lender • NO REGISTRATION REQUIREMENTS WITH SEC

  20. PROVISIONS IN THE MASTER SECURITIES LENDING AGREEMENT 1. Capacity of parties - principal, agent, other capacity - a party may be lender in one transaction but borrower in another 2. Term of loan - open/on demand, specified/fixed

  21. PROVISIONS IN THE MASTER SECURITIES LENDING AGREEMENT 3. Requirements for delivery of securities 4. Eligible collateral & Collateral management procedures 5. Statement that there is transfer of title over the borrowed securities (and over collateral securities, if agreed)

  22. PROVISIONS IN THE MASTER SECURITIES LENDING AGREEMENT 6. Valuation methodology 7. Arrangement for dealing with manufactured dividend, payment, voting right, corporate action 8. Return and recall of securities and consequences

  23. PROVISIONS IN THE MASTER SECURITIES LENDING AGREEMENT 9. Events of default & remedies of parties 10. Grounds for termination of loan and rights of parties upon termination 11. Lending fee & other charges 12. Representations, warranties and liabilities of parties 13. Dispute resolution

  24. LOANABLE SECURITIES • Securities listed in an Exchange • Securities issued by Bureau Treasury • Securities issued by BSP • 4.Other securities allowed by SEC • Provided, the securities are in electronic form or, if certificated, must be in electronic form at the time of SBL, and free from all liens and encumbrances.  

  25. ELIGIBLE COLLATERAL • Cash • Securities listed in an Exchange • Securities issued by Bureau Treasury • Securities issued by BSP • 4.Other forms allowed by SEC • Provided, collateral securities are in electronic form or, if certificated, in electronic form at the time of SBL, and free from all liens and encumbrances.  

  26. DELIVERY OF BORROWED SECURITIES* After the delivery of collateral, or* Simultaneous with the delivery of collateral.The parties shall execute documents or issue instructions to ensure that the title over the borrowed securities shall pass from lender to borrower.

  27. DELIVERY OF COLLATERALBe deposited or delivered to the account of lender* Prior to the delivery of borrowed securities, or* Simultaneous with the delivery of borrowed securities.

  28. OPTIONS OF PARTIES REGARDING COLLATERAL SECURITIES1. Provide in MSLA that title over collateral securities shall also pass from borrower to lender.2. Provide in MSLA that the collateral securities shall be pledged to lender, or other arrangements.* Consider tax impact and risk.

  29. COLLATERAL LEVEL* By agreement of parties. * If without agreement:At least 102% of current market value of borrowed securities, if the collateral is in the form of cash or GS.At least 105% of current market value of borrowed securities, if the collateral is in the form of equities.

  30. OTHER REQUIREMENTS ON COLLATERAL* Mark to Market at least once daily. * Margining method may be done on: - Aggregated or per account - Loan by loan or per transaction (Must be indicated in MSLA)

  31. RESTRICTION ON FOREIGNERS* Cannot borrow from Filipinos such equity securities of companies engaged in activities whose foreign ownership is limited by the Constitution & other laws IF there is no mechanism monitoring foreign ownership. (eg. public utility companies)

  32. TERMINATION OF LOAN* Borrower to return borrowed securities or equivalent. (If not, then default. Transaction deemed sale transaction with corresponding tax impact)* Lender to return collateral.

  33. *DOCUMENTATION– Confirmation Notice specifying details of SBL transaction.*RECORD KEEPING– Lending Agents and Direct Lenders must keep SBL ledgers.*REPORTING- Lending Agents and Direct Lenders to submit to SEC bi-annual Summary Report of SBL transactions.

  34. COMPLIANCE WITH BIR RULESFor SBL transaction to qualify for tax exemption, the parties must comply with BIR regulations. (eg. Registration of MSLA with BIR within specified period)

  35. THANK YOU

More Related